TO THE MEMBERS

Dear Sirs

2003 POLICY YEAR

Reinsurance Arrangements

As Members will be aware from their renewal negotiations, there has been a significant increase of around 37 per cent in the cost of the Group's reinsurance programme for the forthcoming policy year. That increase in cost has now been allocated across the major ship categories and will form part of the renewal for the 2003 policy year.

The structure of the reinsurance contract will be similar to the current policy year. The only change of significance is an increase in the retention taken by the Group in the first layer of the contract of $500 million in excess of $30 million.

For the 2002 policy year the Group has retained 10 per cent of the first layer in excess of $30 million, protected by a specific reinsurance, and an additional 15 per cent of all claims between the Pool excess point of $30 million and $100 million.

For 2003 the structure will be simplified with the Group retaining 25 per cent of the first $500 million. The increased retention will be protected, once again, by a specific reinsurance protection.

Overspill Arrangements

If a claim were to exceed $2.03 billion i.e. the limit of the Group Pool's excess of loss contract, the excess or overspill will be pooled amongst the Group clubs. The overall Group Pool limit for such an overspill claim remains unchanged at 2.5 per cent of the property limitation funds under the 1976 Limitation Convention of all ships entered in the International Group Pool clubs. Members remain ultimately liable to pay an overspill call up to a maximum of this limit for each entered ship, in accordance with Rule 22 of the Rules of the Association.

For 2002 the Association purchased a special overspill reinsurance to cover approximately 85 per cent of the Association's share of a $1 billion claim in excess of the Group reinsurance contract. At the meeting of the Board of the Association on 27th January, 2003 the Directors decided to buy, subject to capacity, at least the same level of protection for the 2003 policy year as the Club has taken for 2002. Details of these arrangements will be notified to the Members once the contract has been placed.

Oil Pollution Limit

The Board has determined in accordance with Rule 5B (iii) that for the 2003 policy year the sums to which the Association's liability in respect of any and all claims for oil pollution shall be limited are:

$1,000 million each accident or occurrence in respect of each ship entered by or on behalf of an Owner not being a charterer other than a charterer by demise or bareboat charterer

or

$100 million each accident or occurrence in respect of each ship entered by or on behalf of a charterer (other than a charterer by demise or bareboat charterer) or by more than one such charterer as Joint Owners, subject to an aggregate limit in accordance with proviso (c) to Rule 5B (iii) of $300 million.

The terms of Rule 5B (iii) govern the application of these limits.

Oil Pollution Risks in the United States - Tanker Voyage Additional Premium

Details of the additional premiums for 2003 are set out in the Association's circular 4/03.

Risks - P&I

Details of the Association's special war risks P&I cover for the 2003 policy year are set out in the Association's circular [<A HREF="ClubCircular0203">Ref: 2/03</A>].

Yours faithfully

Thomas Miller (Bermuda) Ltd.